Category Archives: Business Risk

Risk Management Spotlight

The annual Risk and Insurance Management Society (RIMS) conference opens in San Diego today, so expect a flurry of risk management surveys to be released this week.  Amid the fallout from the credit crisis, the risk management and supervision of financial institutions will surely feature among risk managers’ discussions. Check out I.I.I.’s insuring your business Web site for further info on insurance and risk management for businesses.

State Litigation Threat

The U.S. Chamber Institute for Legal Reform (ILR) has released its annual study ranking the best and worst state liability systems across the country. For the third year running, West Virginia’s legal climate ranked as the worst in the country. Louisiana, Mississippi, Alabama and Illinois rounded out the bottom five states. Meanwhile, the states doing the best job of creating a fair and reasonable litigation environment are: Delaware, Nebraska, Maine, Indiana and Utah. The ILR noted that just over half (55 percent) of senior attorneys view the state court liability systems in America as only fair or poor. A majority (63 percent) also report that the litigation environment in a state is likely to impact important business decisions at their company, such as where to locate or do business, up from 57 percent in 2007. Check out further I.I.I. information on the liability system.  

Increasing Coverage Options

After all the hearings that have taken place up and down the country on coastal property insurance, legislation introduced in the House earlier this week that would expand the coverage options for commercial property insurance has been welcomed by the Risk and Insurance Management Society (RIMS). HR 5792, known as the “Increasing Insurance Coverage Options for Consumers”, would allow Risk Retention Groups (RRGs) and Risk Purchasing Groups (RPGs) to write property coverage. The issue is likely to be a topic of discussion at the upcoming 2008 RIMS annual conference in San Diego April 27 to May 1. For further information on RRGs and RPGs, check out the I.I.I. issues update on captives and other risk-financing options.

Business Insurance Book

Of all businesses that close down following a disaster, more than 25 percent never open their doors again. Having adequate insurance and a disaster plan  is therefore key. For businessowners trying to decide what kinds of insurance they need for their business, the I.I.I. has just published the print version of Insuring Your Business: A Small Businessowners’ Guide to Insurance. Whether it’s property insurance, liability protection, life insurance for key employees or workers compensation, the book has a wealth of information for small businessowners. There are also chapters focused on insurance for specific types of business such as construction contractors, food service businesses, home-based businesses, nonprofit organizations and small retail stores. To purchase a copy of Insuring Your Business check out the I.I.I. online bookstore.  

Business Continuity Threat

It’s becoming a recurring theme. Climate change has again been identified as a major threat by global businesses, according to a new survey on emerging risks conducted by Business Continuity Expo 2008 and sponsored by Marsh. Its findings reveal that some 87 percent of businesses see climate change as the single biggest threat in terms of risk assessment and the effect it could have on their businesses future growth. Perhaps of more concern, many are at a loss as to what can be done in order to prepare or plan for this eventuality. To embellish the point, the threat posed by climate change to the continuity and long-term success of their business is ahead of terrorism, pandemic flu, flooding, the credit crunch, government red-tape and outsourcing and offshoring. The survey was conducted among 150 major U.K. and European companies.

Claims Industry Concerns

Managing claims is a key element of our business, so a Towers Perrin survey of 62 claim officers from property/casualty insurers of various sizes gives some insight into the challenges facing this industry. For example, attracting and retaining top talent is cited as the top priority for 82 percent of companies surveyed. Next up, the effective use of data and analytics as a main driver to meeting business objectives was cited by 52 percent of claim officers, closely followed by an interest in better ways to use technology in general (cited by 50 percent). The survey also focused on emerging trends and issues bringing change to the claims industry, with some surprising results. Nearly two-thirds (65 percent) of respondents chose sophisticated analytics, trumping the perennial issue of escalating claims severity (identified by 50 percent of respondents). Increasing technology needs and reliance on software was the third ranked emerging issue. Both commercial and personal lines companies participated in the survey.  

Underestimating Risk

Hindsight is a beautiful thing. Just as the current credit crisis and related economic issues began to emerge in the third quarter of 2007, senior executives felt very confident about their ability to manage risk and opportunity it appears. The striking findings come in a new study conducted by Towers Perrin, in conjunction with the Economist Intelligence Unit. Towers Perrin notes that with the benefit of hindsight, the study reveals that many organizations underestimated risks or completely missed emerging risks and that the levels of optimism and confidence revealed in the third quarter of 2007, when economic times were relatively good, were not justified. Survey respondents included CEOs, CFOs, board members, presidents, managing directors and other senior execs of midsize and large companies across a range of industries, including insurance. What are your thoughts?  

IRS Reprieve for Captive Insurers

A happy development for the domestic captive insurance industry today, with the news that the Internal Revenue Service (IRS) has dropped a proposed regulation that likely would have driven more business offshore. Issued September 28, 2007, the proposed IRS regulation would have eliminated the right of U.S.-sponsored captives to claim reserve deductions against their domestic tax for future claims and losses on consolidated, or related, business (see our November 14, 2007 posting). Apparently the IRS decided to withdraw the planned rule change after considering all the written comments received. The Coalition for Fairness to Captive Insurers has welcomed the move, saying it removes the uncertainty that has hung over the captive industry since the IRS regulation was proposed last fall. Check out National Underwriter’s February 20 online article by Caroline McDonald for more information on the decision. As many of you know, captive insurers are the oldest form of alternative risk transfer vehicle, dating back to the 1950s. Use of captives by corporations has grown exponentially during the last 30 years in the U.S. In 2006, the U.S. was the largest captive domicile – with 1,251 licensed captives – followed by Bermuda with 989. Check out further I.I.I. info on captive insurers.  

 

Financial Risk Outlook

We head across the pond today, where the U.K. financial regulator has published its annual Financial Risk Outlook. Amid the continuing slowdown in the economy, the FSA’s 2008 report focuses on the risks arising from the events of the second half of 2007 and specifically warns firms and consumers of the risks that could impact them in a less benign economy. Among the risks identified as priority, the FSA notes that tighter economic conditions could increase the incidence or discovery of some types of financial crime or lead to firms’ resources being diverted away from tackling financial crime. An interesting point, given last week’s  revelation concerning a rogue trader who defrauded French bank Socià ©tà © Gà ©nà ©rale of $7.2 billion. Check out  further I.I.I. info on financial  and market  conditions for insurers.

Hall of Shame

The Coalition Against Insurance Fraud (CAIF) has released its annual Insurance Fraud Hall of Shame, listing the year’s most brazen insurance scams. We read that a glass-eating gypsy, a teacher who faked cancer, and an insurance agent who killed the homeless are among the top insurance swindlers of 2007 and have been duly inducted into the Insurance Fraud Hall of Shame. According to the Coalition, insurance fraud is an $80 billion-a-year crime and has grown more violent and invasive in recent years, as indicated by this year’s Hall of Shame swindlers. Check out further I.I.I. info on insurance fraud.